The Riigikogu State Budget Select Committee has sought clarity in its last two meetings on the extent of cuts to administrative costs in the 2025 state budget.

At the first meeting, committee chair Urmas Reinsalu (Isamaa) pointed out that although the coalition had pledged to reduce administrative costs – namely labor and operational expenses, as well as subsidies – by 5 percent, these expenditures are, in fact, increasing. Excluding defense-related special equipment from operational costs, administrative expenses rise by 2 percent.

This week's committee meeting included representatives from the Ministry of Finance, who had more detailed data. Based on the information received, Reinsalu concluded that labor and operational costs in ministries had not been cut. The state budget strategy for 2024-2025 had allocated €3.4 billion for administrative expenses in 2025, and the approved budget reflects the same amount.

Auditor General Janar Holm, who also participated in the committee meeting, told ERR that Monday's discussion clarified which expense lines are being cut. He noted that, under the coalition agreement, labor and operational expenses, as well as activity-based and targeted subsidies, are to be reduced by 10 percent over three years. However, activity-based and targeted subsidies are not specifically defined in the state budget.

Until now, discussions have centered on reducing labor and operational expenses – collectively referred to as operational costs – and other subsidies. Holm revealed on Monday that, in addition to other subsidies, investment subsidies are also being cut.

"The Ministry of Finance confirmed that, among the four categories of expenses previously mentioned, only those with spending limits are subject to cuts. Excluded are expenses financed from external sources, revenues from CO2 sales and statutory costs," Holm explained.

Thus, the figures presented during the special committee meeting encompassed not only labor and operational costs but also all four of these categories. The Ministry of Finance also reiterated its earlier information: rather than cutting the 2025 state budget compared to 2024, reductions were applied to the funds planned for 2025 in the 2024-2027 state budget strategy. These reductions also considered the effects of cuts implemented in 2024 and other factors.

"Based on the verbal information provided at the committee and calculations made on-site, we cannot determine whether the cuts outlined in Table 8 of the 2025 state budget explanatory memorandum are reflected in the 2025 budget," Holm said.

To provide an assessment, the National Audit Office is requesting more detailed data from the Ministry of Finance regarding the spending limits planned in the 2024-2027 state budget strategy for labor costs, operational expenses, investment subsidies and other subsidies for each ministry. This information would clarify where cuts were made.

"We will submit the corresponding inquiry. This will allow us to compare these amounts with the respective figures in the 2025 state budget. Additionally, we can create a baseline comparison with the corresponding expenditure levels of 2024," Holm explained.

However, Holm emphasized that a definitive answer on whether and in what form the 2025 cuts have materialized will only be available in the first quarter of 2026.

"The reason is that labor costs, operational expenses, investment subsidies and other subsidies targeted for cuts under the coalition agreement are not fixed as expenditure ceilings in the state budget law. While these are outlined in the annex and explanatory memorandum of the state budget, ministers are not required to adhere to this distribution when making expenditures. Expenditure ceilings in the state budget apply to outcome areas and activities," Holm clarified.

He added that this is yet another example of the disconnect between preparing the budget document based on activities while attempting to manage it using a traditional cost-based perspective.

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